Spritzer’s 2QFY23 net profit increased to RM12.2mn (QoQ: +70%, YoY: +59%), attributed to higher sales volume of bottled water and average selling price (ASP), as well as reduced raw material costs. Overall, 1HFY23 net profit of RM19.3mn (+35% YoY) was in-line with our and consensus expectation, accounting for 49% and 51% of full year forecast respectively. Looking ahead, the outlook remains promising with projected sales growth to be supported by stable bottled water demand due to resurgence in tourism, increase awareness of healthier drinks and hygienic bottled water. Maintain a BUY call with higher TP of RM1.86 (from RM1.74), based on the FY24 EPS and pegged at 14x PER.

• Within expectations. Spritzer’s 1HFY23 net profit of RM19.3mn (+35% YoY) was in-line with our and consensus expectation, accounting for 49% and 51% of full year forecast respectively.

• QoQ. Spritzer’s 2QFY23 revenue and net profit increased by 13% and 70% to RM123.7mn and RM12.2mn respectively. The encouraging results were mainly due to increase in bottled water sales volume and ASP. Consequently, profit margin improved by 3.3 ppts QoQ to 9.8%, thanks to higher revenue and reduction in overall lower operating costs.

• YoY. Revenue improved by +16% YoY, driven by increased bottled water sales due to robust domestic demand and a rise in ASP. Segment-wise, revenue grew by 18% YoY in the sale of bottled water and related products segment, that helped mitigate the decline in the plastic packaging materials segment (-10% YoY). Net profit saw a substantial 59% YoY increase, with the margin improving by 2.6 percentage points YoY. This improvement was primarily attributed to lower raw material costs, which helped offset the impact of higher electricity costs resulting from the ICPT rate hike.

• Outlook. Spritzer's sales growth will be supported by stable demand for bottled water, given the revival in tourism and increased awareness of healthier drinks, as well as hygienic bottled water. On the cost front, we expect higher operating costs especially electricity and labour, to be partially offset by lower raw material costs. PET resin raw material prices has decreased by approximately 18% YoY. Additionally, the installation of solar PV in all three manufacturing plants will help mitigate the impact of higher electricity costs in the long run. Overall, we anticipate a stable EBITDA margin of around 15-16% in FY23-FY24F.

• Our call. We maintain a BUY call on Spritzer with a higher TP of RM1.86 (from RM1.74), after rolling over to FY24 EPS and pegging at 14x PER (inline with Spritzer’s 5-year average forward PER). We like Spritzer due to i) its defensive business nature, ii) most integrated bottled water producer with over 40% market share, iii) ongoing automation initiatives to enhance productivity, and iv) concerted effort in implementing ESG initiatives.

Source: BIMB Securities Research - 30 Aug 2023